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IPO vs Private Equity CS: Sale and Lease Back

Explore the pros and cons of IPOs and private equity investments in the shipping industry, including sale and lease back financing schemes. Discover the benefits and drawbacks, valuation metrics, and requirements for each option.

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IPO vs Private Equity CS: Sale and Lease Back

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  1. IPO vs Private EquityCS: Sale and Lease Back

  2. Agenda • Capital Markets • Considerations for an IPO • Private Equity • Considerations for Private Equity • Sale and Lease back. Financing Scheme • Process • Requirements • Advantages – Disadvantages

  3. Capital Markets Mid – 1990’s: the US Capital Markets had no exposure to the International shipping industry. March 2006: the US Capital Markets: over 20 shipping companies March 2007: 23 Greek ocean-going shipping companies publicly listed in major stock exchanges around the globe Investors’ Appetite: Recent Profitability, STEADY and high growth of the Shipping Industry.Shipping has become more sophisticated as a number of participants have a better understanding of financial markets & instruments. Good for the industry: Increasing number of IPOs has a positive effect on the shipping industry; some of the benefits of this trend are transparency, improved reporting standards and independent boards. Investment Banks: Shipping companies’ capital markets related needs are not catered by the shipping banks that assist them in their debt financing. Instead they are catered by specialized US based Investment banks THE CYCLICALITY OF THE SHIPPING INDUSTRY DETERS THE INVESTMENT COMMUNITY’S INTEREST

  4. Considerations for an IPO • Which Bourse? • What amount? • Loss of Controlling interest? • Cost Involved? • The Story? 1. Vessels 2. Employment period 3. Dividend payout strategy • Valuation Metrics?

  5. IPOs…To be Public or not to be? DIS-ADVANTAGES 1. Less Confidentiality (complete financial and related party disclosure) 2. Time Consuming (Management devotes time to public company operations) 3. Higher Costs (Regulatory, Auditing, Legal and Investor relations requirements) 4. Continuous scrutiny (Investors and Analysts) 5. Investor’s Interest (not steady) 6. Strategy (not easy to change) 7. Asset play (not easy to conduct) ADVANTAGES 1. Exit Strategy (Liquidity) for Minority Owners 2. Valuation (Higher) – above Net Asset and Book Value 3. Fleet Growth through access to capital markets 4. Cost of Capital is reduced due to Liquidity of Company’s stock 5. Ability to make acquisitions using company stock

  6. Private Equity Purest Form: Participation in the shipowner’s business (either at the Company Level or at a Project Level) Where do we find private equity? 1. Historically: Friends & Family and Retained Earnings (operation & Asset Play) 2. High Net Worth Individuals (HNWI) e.g. Private Banking 3. Institutional Investors (Listed or Private Equity P/E Funds) Why does Private Equity wish to invest in a shipowners business? RETURN ON EQUITY - The Private equity investors seek to obtain a return on the funds they invest of more than 15% p.a. DIVERSIFICATION – The Private Equity funds need to diversify their investment portfolio.

  7. Private Equity What are Private Equity Investors looking for?... • Counterparties: reputable companies, track record • Corporate structure: transparency, shareholding structure, rating (or not), succession • Exit: defined upon entering of investment • Control: ability to control own invested capital/participation • Asset age: young to middle aged assets • Asset type: Liquid assets versus specialised (diversification / timing) • Yield: minimum annual dividend with degree of predictability • Structure: Standard versus tailor made • Sponsor support: corporate backing, guarantees, asset cover • Employment: bareboat, time charter, pool or joint venture backed investments

  8. Sale and Lease backFinancing Scheme Investors (2-6) 100% Shipping Fund Equity 20% 75% Bank SPC Vessel Owning Loan Sellers’ Credit 5% Bareboat Charterer Time Charterer Group (Guarantor)

  9. Process • Sale of the vessel • MOA • Lease Back • Bareboat Charter • Charterer’s Undertakings • Security • Buy Back • Option Agreement • Additional • Charter Guarantee • Charterer’s Assignment • Account Pledge

  10. Requirements • From the Shipping Fund • Counterparties: Reputable companies, track record • Corporate Structure: Transparency, Shareholding structure (Group – Holding Co) • Control: Ability to control the own invested capital • Age: Young to middle aged assets • Guarantees: Corporate support, asset cover • Employment: Time Charter, Contract of Affreignment

  11. Requirements • From the Bank • Know Your Customer • First Priority Mortgage • Financial Convenants • Minimum Market Adjusted Net Worth • Maximum leverage • Working Capital greater than zero

  12. Increased Liquidity (finance 100% of the MV of assets) Confidentiality Management’s Control Evenly spread repayment High Cost of Capital (effective interest rate 8%) High Exit Cost Long term time charter or CoA Inflexible exit scenarios Financial Covenant (Debt ratio) Advantages - Disadvantages

  13. The figures…

  14. Thank You!

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